In a speech at University College London yesterday (23 January), Tony Danker, the director-general of Britain’s largest business group, the Confederation of British Industry (CBI), politely but firmly criticised the government’s economic policy failings – particularly around growth in the green sector.
Britain has a record number of job vacancies, yet an unemployment rate that remains stubbornly low – but Danker thinks he knows the solution. “We need a system that assesses the skills the economy needs,” Danker told me. “Step two: we need an assessment of how much those skills can be met, practically, by the British workforce.” If a skills gap is found, Danker said the government should use fixed-term migration in the short term, then put a skills policy in place to even out imbalances.
In November, Danker, whose organisation represents 190,000 companies, joined the chief executive of Next, Simon Wolfson, and Guy Hands, the billionaire owner of the private equity firm Terra Firma, in calling for eased immigration rules to help fill job vacancies.
Danker believes all politicians know these gaps require more foreign workers, but that, politically, they feel compelled to sound tough on immigration. In his speech, the head of CBI called the government’s ambition for a “high-wage, high-skill economy… an empty promise”. He added: “The debate from parliament is understandably, but regretfully, not tackling the issues. It’s playing politics with the issues.”
Although Danker’s organisation came out against Brexit, he sees little point in “re-prosecuting” a 2016 argument – although he said to me that it has “not been good” for the economy. “Brexit… was the moment the political classes said sovereignty was more important than the economy, and that is entirely legitimate in a democratic process.”
It’s important not to blame Brexit for everything wrong with the economy, Danker thinks, and emphasised that the past 15 years have been characterised by low growth and flatlining productivity – for which he sees “nothing in the [government’s] plans” to solve the issue. “We’re in a very unusual moment, one I’ve not seen in my lifetime, where fiscal policy is tight, and it must be; monetary policy is tight, and it must be. As such, the usual levers we reach for in growth policy are not available to us, on the face of it.”
This is true: the government cannot just spend more money on infrastructure or economic development policy; it cannot quantitatively ease or bring interest rates down; it cannot easily cut and slash taxes for businesses to grow investment.
“The question now, therefore, is how does the economy grow when policy shrinks?” Danker said. “It’s a huge challenge.”
But he did have suggestions. “We forecast a recession [this] year, but the key determinant of whether it’s shallow or deep is business confidence.” As things stand, most businesses are drawing up contingency plans. “We’ve got an enormous section of our economy that is hesitant about investing through the cycle. So the government needs to create momentum, and it still has some policy levers to pull.”
The first of these levers is the tax system, which as Rishi Sunak has admitted, is not pro-investment compared with other G7 countries. Danker praised the Prime Minister’s “brave decision”, when he was chancellor, to raise corporation tax six points overnight while simultaneously putting in place a so-called super deduction, which gives qualifying companies money back for every pound they invest. “This was a system that said, if you want to make money and pay dividends, that’s fine, but you pay more tax than if you want to reinvest profits in capital skills and innovation.”
However, Chancellor Jeremy Hunt is keeping the corporation tax rise but getting rid of the super deduction. “So we still don’t have a tax system that incentivises investment,” he said. “If anything, we now have one that punishes investment because you just pay more tax. Sunak needs to follow through.”
Danker also wanted to see the government use its balance sheet rather than its current account, which would increase underwriting to sectors like green energy, making them more investable. “When it comes to green investment, we’ve been overtaken by the US’s Inflation Reduction Act. Money is shifting to them. Meanwhile, we’re also failing to keep up with EU stimulus for green investment.”
The other set of growth levers available to the government, according to Danker, are all non-fiscal: the rules that govern the UK’s market environment. Bold action is required on these, he said.
“Parliament determines whether or not businesses can import skills or not, who it can trade with and on what terms, etc,” said Danker. “And at the moment… we do not have regulation which is pro-growth, be it on immigration or the ongoing EU stalemate with the Northern Ireland protocol discussion.” He fears that the UK will be seen, once again, to have a Brexit problem. Beyond the reputational damage caused by Liz Truss’s mini-Budget, the UK has not been an easy place to convince foreign and domestic companies to invest in, the director-general added.
Still, Danker has been impressed by the recent performance of the Labour Party. “People are really pleased that, when it comes to business, Keir Starmer is in charge, not Jeremy Corbyn. They’re really responsive to and impressed with Keir, [the shadow chancellor] Rachel Reeves and [the shadow business secretary Jonathan] Reynolds, and all of those front benches engaging with business. These are politicians who listen and respond to business concerns.”
He is particularly complimentary about Labour’s “very bold stance” on green investment. “Keir is absolutely winning hearts and minds in the business community who are worried that the government is going backwards, not forwards, on that agenda. So that’s very popular.” Danker also praised Labour’s commitment to economic clusters as a way to “level up” the economy. “It’s a massive opportunity.”
The only fears surrounding Starmer are that a lot of areas in the “policy colouring book” are not filled in, he said. “We don’t need great strategy and no detail, which was Boris [Johnson]’s curse.” Danker pointed out the party has not produced many leaders from the business community. “I don’t think the Labour Party, historically, has had a strong enough vision for how businesses can deliver a better society. This is the fundamental question for the left of politics: is business the problem in delivering a fairer society, or is it the solution for delivering a fairer society?” It goes without saying that Danker believes the latter.
He also felt, “very deeply”, that there is a “great opportunity” for the centre left and the business community to work in conjunction. “Around the world, we have more of a political leadership deficit than a business leadership one. The vast majority of employers in the UK have completely reassessed their capitalism because of employee, political and societal pressure. We saw them step up during the pandemic. The press will continue to report on the bad capitalists, and they must, but business has and is changing. I see it.”
[See also: Conservative Environment Network: the government must attract green investment, not deter it]
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